10/01/2008 @ 2:50PM

Buffett Bets On GE

First Goldman Sachs, now General Electric. Billionaire
Warren
Buffett
Warren Buffett
is taking advantage of a depressed stock market to take positions in some of America’s most well-regarded companies at attractive prices.

Trading of
General Electric
shares was halted just before 1:45 p.m. in New York, minutes before the conglomerate announced a $12.0 billion common stock offering and an investment from Buffett’s
Berkshire Hathaway
. GE will sell Berkshire $3.0 billion of perpetual preferred stock with a 10.0% dividend that is callable after three years at a 10.0% premium.

Berkshire will also receive warrants, with a five-year term, to purchase $3.0 billion of common stock at $22.25 a share, a 9.6% discount with GE down 90 cents, or 3.5%, at $24.60, after trading resumed Wednesday afternoon. The deal mirrors Berkshire’s Sept. 23 investment of $5.0 billion in Goldman Sachs
, and Buffett was approached by Goldman for the GE deal. (See “Buffett’s Golden Goldman Buy.”)

Buffett said he made the Goldman deal with the expectation that some type of bailout package would be passed through Congress. With the bill defeated in the House Monday, and the Senate planning a Wednesday night vote on its own bill, Buffett said in a televised interview that he would be willing to take a stake in the Treasury Department’s $700.0 billion package. The billionaire told CNBC he would take 1.0% of the deal if the government plans to buy mortgage-related securities from banks at market prices, a situation he predicted will lead to profits. (See “Lawmakers Seek Solution To Bailout Mess.”)

The investment into GE took the spotlight away from the Senate, which is meeting in Washington with hopes to pass a rescue package during a vote later Wednesday night. Fears that the frozen credit markets will bring the entire U.S. economy to its knees continue to be the most popular argument in support of the bailout, and lending rates between banks illustrate the conditions. The overnight London interbank offered rate was below Tuesday’s levels at 3.79%, but that was more a reflection of the prior day’s spike to 6.88% as banks declined to take on any nonessential risk on the final day of a quarter. Three-month Libor was up to 4.15%, from 4.05% Tuesday.

Concerns remain that if credit remains tight the commercial paper market may continue to dry up, and traders were looking toward the Federal Reserve’s weekly data which last showed the market shrunk by $113.0 billion in the two weeks up to Sept. 24. There is also a chance the potential crisis in the market for commercial paper, which are basically short-term IOUs companies use to fund daily operations like payroll, may be overstated to some extent. GE Chief Executive
Jeffrey
Immelt
Jeffrey Immelt
said the conglomerate continues to successfully meet its commercial paper needs, despite current market volatility, according to TradeTheNews.com.

Wall Street had shed most of its losses by the afternoon, holding mildly negative as investors looked ahead to the Senate’s bailout vote. The Dow was down 9 points, or 0.1%, to 10,841; the S&P 500 lost 4 points, or 0.4%, to 1,162; and the Nasdaq was off 17 points, or 0.8%, to 2,074.

Automakers reported September’s domestic sales figures Wednesday, and the numbers were not pretty for at least one Detroit company.
Ford Motor
, expected to show a 22.0% year-over-year decline, recorded a 34.6% drop, and posted its fewest sales of any month this year.
General Motors
was on steadier footing, after its 15.8% decline in sales was better than the 26.0% expected. Ford shares slumped 65 cents, or 12.5%, to $4.55, while GM erased its early loss to gain 5 cents, or 0.5%, to $9.50. U.S. sales for Japanese automaker
Toyota Motor
were off 32.3%. American depositary receipts of Toyota were down $1.15, or 1.3%, to $84.65 in New York. (See “Ford Needs The Bailout Package.”)